Modest growth and stable margins for large Indian IT outsourcers like Wipro, Infosys and TCS

Large Indian IT outsourcers are expected to post flat to modest growth in revenues in Q1 of the fiscal, helped in part by a falling rupee. Top-ranked TCS and fourth-ranked HCL Technologies are likely to grow at a faster pace than Infosys and Wipro, analysts said.

“Typically, the first and second quarters are seasonally strong quarters for IT firms from a demand perspective but because of global uncertainty, growth will be muted,” said Hitesh Shah, director of equity research at IDFC Securities. “Rather than 5%-plus growth, we will see the top firms growing 0-3%, with TCS and HCL performing better than Infosys and Wipro.”

Analysts said Infosys could lower its annual revenue growth forecast from the current 6-10%. While IIFL expects Infosys to trim the guidance to 4-9%, Morgan Stanley said it could revise it to 4-6%. Discretionary spending—which Infosys depends more on than other Indian IT firms—could be under pressure going by results of global players like Accenture and Oracle. Last week, Accenture cut its annual revenue growth guidance to 3-4% from 5-6.5% and reported lower-than-expected performance at its consulting division. On the other hand, Oracle posted slow growth in hardware and software licence sales, reflecting uncertainty among clients towards new investments and delays in deal closure.

“Accenture’s weak consulting growth indicates that there is still no improvement in the discretionary spending environment,” said Pinku Pappan of Nomura Securities. Q1 is also when most companies give out salary increments. But the impact on margins this fiscal is likely to be partly offset by gains from a depreciating rupee, analysts said. The rupee has fallen by an average 5% against the dollar during the quarter. “The rupee fall will help margins. Salary increments will have a negative impact on margins for TCS. For Infosys, there was a partial wage hike, with sales force increments were effective from May and full impact of onsite hikes (effective February),” said IDFC’s Shah.